Articles – The Centre for Independent Studies

A trillion-dollar debt with much the same problems

Simon Cowan

22 May 2021 | Canberra Times

Some have exclaimed, in despair or admiration, this was not a Liberal budget.

The Treasurer disagreed, pointing to (temporary) tax cuts for individuals and businesses and home ownership initiatives, and claiming his record level of expenditure was “not just more money but serious reform”. The problem is that, in so many areas, this is simply not true.

For a start, the government abandoned any pretence of super reform, industrial relations reform, and left its substantial stage 3 tax reform package hanging in the wind.

The substantial issue of housing affordability was barely dealt with. This is perhaps the most annoying omission because it leaves the field open to the flawed demand-side “tax and spend” plans of the left.

The government has increased funding for the childcare sector, yet failed to even acknowledge that the cost pressures in the childcare sector are caused by chasing two fundamentally incompatible goals.

The government may claim its childcare spending is about getting women back to work, but the childcare sector is governed by a framework dedicated to providing “quality” early childhood education. This framework, which specifies child/teacher ratios and requires expensive qualifications, will only continue to drive costs up.

In the absence of genuine reform to reconcile these goals, the spiralling costs will continue to negatively impact the decision of mothers to return to work.

A similar story can be found in relation to the NDIS. As far back as 2012, the Centre for Independent Studies warned that the NDIS would vastly expand its coverage and cost far more than the government anticipated.

As my then colleague, Andrew Baker, observed: “There remain a number of fundamental, structural and political issues that will increase the real cost of the NDIS substantially, up to full implementation and beyond.”

Of course it would be very difficult for a government obsessed with polling and trying to ensure no one has a bad word to say about those in charge to take on the vested interests to achieve meaningful reform.

This is the greatest failing of the budget. It props up failing structures with new money, no doubt with a view to getting through the next election.

It also gets to the heart of the “unLiberalness” of the budget. It shouldn’t be about how much you spend but how effectively spend you it. As New Zealand reformer Bill English made clear: when the fiscal position is poor, the focus must be on demanding more accountability and effectiveness from public spending.

A government committed to reform must have the courage to follow the evidence. It’s those who don’t that keep having to whip out the nation’s credit card.

A good example of the problems of the “more money, no accountability” approach is in Indigenous affairs. A number of recent reports and speeches have set out the problems with the race-centric focus in this area, when it is becoming increasingly apparent that many of the problems are more about remoteness than race.

As Warren Mundine emphasised in a recent paper “there is a wide gap developing between Indigenous Australians living in the cities … and those in remote Australia … If this disparity is not addressed, remote Indigenous people will continue to be the poorest and most disadvantaged people in Australia – and this may be masked by improvements in the lives of those in the cities.”

Mundine makes clear that economic participation underpins all areas of Indigenous disadvantage, but in relation to remote communities “the natural supply and demand cycle has been stifled by structures imposed … by legislation, the legal framework for Indigenous lands, and government programs”.

He rightly argues Indigenous policy needs to get back to these fundamentals with a focus on school attendance, jobs and creating the environment for Indigenous business creation.

Business creation – a central element of fixing this problem – cannot be achieved in Canberra. It can only be done in the communities. The government would do well to refocus at least some of its effort away from delivering good and services to these communities to fostering the ability of these communities to generate their own economic infrastructure.

If government wanted to do something, it could fix things within its control; particularly in the delivery of education.

Cape York Indigenous leader Noel Pearson blames low expectations and poor instruction for poor results for remote Indigenous students. This is a theme Kimberley region educator Lorraine Hammond echoes. She argues ideological beliefs continue to dominate discussions on Indigenous education, often circulated by vocal critics who’ve never taught in remote communities.

“The result is that children are pigeonholed into a racially-defined pedagogy, rather than an evidence-based one.” she notes.

Getting kids into school. Getting them to stay in school once there. Teaching them in a way that works. None of this should be news to government – or indeed to the education profession.

Yet the effort to implement these policies often doesn’t show up in the payments column in the budget. The conventional wisdom is that the more committed government is always the one who spends the most.

If that spending doesn’t work, the committed government remains undeterred. More money must be the solution.

That isn’t a solution, it’s the definition of insanity.

This budget presented Canberra with a very tempting choice. The unique circumstances of the pandemic, a pre-existing deficit and a significant improvement in the bottom line basically took all the normal brakes off the decision making process.

The government could have used that opportunity to focus on structural reform. To set up a process that would make the country in 2030 more productive and prosperous.

Instead the government chose structural spending, so the country in 2030 will be $1 trillion in debt, but likely facing many of the same problems as today.

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